April 10 (Bloomberg) -- SAC Capital Advisors LP’s landmark
$1.8 billion settlement of a U.S. government insider-trading
probe stretching back to 2007 was approved by a federal judge,
bringing to an end the hedge fund’s role as a money manager and
capping a decade of insider-trading cases.

SAC Capital, which this week changed its name to Point72
Asset Management LP, pleaded guilty to reaping hundreds of
millions of dollars in illegal profits and fostering a culture
of criminality that encouraged brazen insider trading by its
employees.

Though never able to charge or even sue founder Steven A.
Cohen, the government managed to snare eight current or former
employees through guilty pleas and trial convictions. Cohen, 57,
who has consistently denied wrongdoing, is the subject of an
administrative proceeding by the Securities and Exchange
Commission, which claims the billionaire failed to supervise
employees to ensure they complied with securities laws.

“Both sides in this case can claim victory,” said Doug
Burns, a former federal prosecutor. “Cohen can say ‘they didn’t
have the ability to prosecute me individually because I did
nothing wrong.’ And the government gets to say this was a place
with a horrid culture and, while the evidence didn’t enable us
to prosecute Steve Cohen, we got a very, very sizable monetary
fine out of the culmination of all our efforts.”

Crimes ‘Striking’

“The defendants’s crimes were striking in their magnitude
and striking in their lack of respect for the law,” U.S.
District Judge Laura Taylor Swain in Manhattan said today in
accepting the plea. Each SAC Capital fund was sentenced to five
years’ probation and will be under a federal compliance monitor.
Cohen wasn’t present for the hearing.

The plea deal ends both the prosecution and money-laundering lawsuit brought by the office of Manhattan U.S.
Attorney Preet Bharara. The agreement consists of a $900 million
fine to end the criminal case, as well as a separate $900
million judgment the hedge fund agreed to pay to end the suit.
Within that judgment is $616 million Cohen agreed to pay the SEC
to settle a separate lawsuit filed last year.

As part of the plea deal, the firm agreed to manage money
mainly for Cohen.

“Today marks the day of reckoning for a fund that was
riddled with criminal conduct,” Bharara said in a statement.
“Today’s sentence affirms that when institutions flout the law
in such a colossal way, they will pay a heavy price.”

New Twist

SAC Capital’s conviction is the apex of a seven-year effort
by the Justice Department to root out market cheating not only
at hedge funds, but among insiders at publicly traded companies
and so-called expert-networking firms.

Those firms, middle-men who put company insiders together
with traders to provide industry insight, were the new twist of
modern-day market manipulation. The Federal Bureau of
Investigation in New York upped the ante as well, leveraging
wiretaps and surveillance measures previously reserved for
mobsters and drug dealers, to catch Wall Street criminals.

The initiative has netted convictions and guilty pleas of
about 80 people charged since August 2009.

U.S. District Court Judge Richard Sullivan, who presided
over the money-laundering suit, previously approved that
settlement, which included a $284 million payment from SAC
Capital, in addition to what Cohen agreed to pay the SEC.

‘Market Cheaters’

Bharara called SAC “a veritable magnet for market
cheaters” in announcing the indictment in July, and said the
U.S. had determined the insider-trading scheme dated back to
1999, spanned more than a decade and involved at least 20 public
companies.

“When so many people from a single hedge fund have engaged
in insider trading, it is not a coincidence,” Bharara said at
the time. “It is, instead, the predictable product of
substantial and pervasive institutional failure.”

To date, former SAC employees Noah Freeman, Donald
Longueuil, Wesley Wang, Richard Choo-Beng Lee, Jon Horvath and
Richard Lee have all pleaded guilty to insider trading as part
of the Justice Department’s investigation of the hedge fund,
which drew federal scrutiny in part due to its reputation for
very high rates of return on client investments.

Since he started his firm in 1992, Cohen has achieved
average annual returns of 30 percent, one of the best records in
the industry’s history. He had just one money-losing year: 2008,
when his main fund tumbled 19 percent.

“The defendants were once a group of very respected hedge
funds earning up to 25 percent returns,” the judge said today.
“We now know how some of that was achieved.”

Clinical Trial

In December, Michael Steinberg, SAC’s longest-serving
portfolio manager to be accused of wrongdoing, was convicted of
conspiracy and securities fraud after a five-week trial.

This year, Mathew Martoma, a former SAC fund manager, was
found guilty of using secret information about the clinical
trial of an Alzheimer’s drug to trade in shares of Elan Corp.
and Wyeth. Prosecutors called Martoma’s insider-trading scheme,
which netted SAC Capital $275 million, the biggest single
insider trading event in U.S. history.

Steinberg and Martoma, who have yet to be sentenced, face
as long as 20 years in prison.

Two others SAC employees, Jonathan Hollander and Ron
Dennis, were sued by the SEC for insider trading. Both settled
with the regulator, paid fines and didn’t admit or deny
wrongdoing.

Reviewed Documents

SAC and three of its units sought to plead guilty last year
to four counts of securities fraud and one count of wire fraud.

Swain delayed approval until today, saying she wanted to
review sentencing documents. She questioned prosecutors today as
to why they said insider trading was pervasive at SAC,
suggesting that eight convictions was only a “handful” of
people.

Assistant U.S. Attorney Antonia Apps said the eight
convictions of SAC employees was the largest number of insider
traders at one institution the prosecutor’s office has seen.

Peter A. Nussbaum, general counsel for SAC and now Point72,
apologized to the court for the actions of the funds.

“We accept responsibility for the misconduct of our
employees that has brought us before your honor,” Nussbaum
said. “We have paid and are paying a significant penalty for
this misconduct. This includes not only the heavy penalty that
this court may impose and the other sanctions that have been
imposed on us, but also the stain on the reputations of the
honest and hardworking people at our firm.”

Penalty Range

Martin Klotz, an SAC lawyer, wrote in a March 27 letter
urging Swain to approve the settlement that the proposed fine
was above the highest range, of $411 million to $823 million,
called for under federal sentencing guidelines.

In a copy of an internal SAC memo today from President
Thomas Conheeney obtained by Bloomberg News, the hedge fund’s
employees were told that the firm has “taken responsibility,
appropriately, for the employees whose misconduct led to these
charges. We will do whatever we can to make sure this doesn’t
happen again.”

In a bid to distance itself from the conviction, SAC, which
Cohen started with $25 million, abandoned its founder’s initials
this week by changing the name to Point72, a reference to the
address of its headquarters at 72 Cummings Point Road in
Stamford, Connecticut.

The firm said that it had returned almost all investor
money as of the end of January, leaving it primarily to manage
Cohen’s private wealth. It also said it had shrunk its headcount
to 850 people from 1,000.

Compliance Procedures

As part of the transition, Cohen’s firm said it has stepped
up its compliance procedures, including the hiring of Palantir
Technologies Inc., a Central Intelligence Agency-backed software
maker, to boost surveillance. It also created a new position,
chief surveillance officer, and hired a former Assistant U.S.
Attorney in Manhattan, Vincent Tortorella, for the role.

SAC Capital said in February that its chief compliance
officer, Steve Kessler, would be stepping down after nine years
at the firm. Prosecutors said last July that his group had
identified only one example of suspected insider trading in its
history.

The hedge fund also hired a compliance officer for health
care to review investment ideas and chaperon telephone calls
between employees and doctor consultants. Such communications
were the focus of the government’s case against Martoma.

Units Eliminated

The firm also overhauled its business group, doing away
with its Sigma and CR Intrinsic units, where many of its former
employees embroiled in the insider-trading probe worked.

Cohen’s firm managed about $11.9 billion in assets as of
Feb. 1, according to regulatory filings. Executives at SAC,
which had $15 billion at the start of 2013, had expected the
firm to start this year with about $9 billion once capital was
given back to investors.

The SAC Capital case is the second time the government has
prosecuted a hedge fund for insider trading.

In 2012, Tiger Asia Management LLC, the New York-based
hedge fund founded by Bill Hwang, pleaded guilty and agreed to
pay $16.3 million to resolve insider-trading charges and $44
million to settle SEC claims.

Federal prosecutors in New Jersey claimed Tiger Asia used
inside information it got through private placement offerings to
sell short shares in two Chinese banks.

Even with its new name and new mission, SAC Capital’s
conviction isn’t the end of the U.S. investigation of the
renamed hedge fund, or Cohen, the ultimate target of the
multiyear probe, a person familiar with the matter has said.

Investigation Continues

Bharara’s office continues to investigate trading by SAC
employees in Gymboree Corp., a children’s-apparel maker, said
the person, who requested anonymity because the probe is
continuing.

“Yes, this is a big achievement for them, but on the other
side of it, the reality is, the real fish that they wanted, the
person that they thought was the shark, swam off,” said Thomas
O. Gorman, a corporate defense lawyer and former SEC enforcement
official. “This is certainly one of the most significant pleas
that the U.S. attorney’s office has gotten in this whole string
of insider trading cases.”

While “the unbroken string of cases, the careful
craftsmanship that went into these cases, really sends out a
deterrent message” to would-be insider-traders, Gorman said,
“that they couldn’t get where they clearly wanted to go really
does undercut that message.”

Not everyone will view SAC Capital’s fate as a warning,
said Anthony Sabino, a law professor at St. John’s University in
New York.

“This is not, I repeat not, the end of insider trading,”
Sabino said in an interview. “Others will follow. There will
always be somebody who will say ‘I am smarter than Martoma. I am
smarter than SAC.’ They will take their chances.”

The criminal case is U.S. v. SAC Capital Advisors LP, 13-cr-00541; The civil case is U.S. v. SAC Capital Advisors LP,
1:13-cv-5182, U.S. District Court, Southern District of New York
(Manhattan).

To contact the reporters on this story:
Patricia Hurtado in Federal Court in Manhattan at